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Biopharma/Investing
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I had a dream MDGL stock was $2 and I said “who ever thought that was a good idea?”. That’s probably a premonition as well as a dream.

Book Review – Tesla: Inventor of the Modern by Richard Munson
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I liked it. I’m reading “How to Change Your Mind” now. I don’t like it.

Papers I’ve Read
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Discovery of Potent and Centrally Active 6-Substituted 5-Fluoro-1,3-dihydro-oxazine beta-Secretase (BACE1) Inhibitors via Active Conformation Stabilization. Nakahara et al. J Med Chem 2018, 61, 5525-5546.
These BACE inhibitors arise from a Shionogi/J&J collaboration. Recall the Shionogi scientists wrote a nice paper explaining semagacestat as a pseudo-gamma-secretase inhibitor. Here, I’m not sure they apply their learnings. They see potent CSF Abeta drop in beagles but don’t report on total brain Abeta. Maybe it is cumbersome to do a total beagle brain homogenate analysis? Otherwise its a classic pharma paper, optimize for Pgp and CYP inhibition. Some interesting perspectives on equatorial/axial conformation with Newman projections that you don’t see often in these papers.

HIV vaccine candidate activation of hypoxia and the inflammasome in CD14+ monocytes is associated with a decreased risk of SIV_mac251 acquisition. Vaccari et al. Nat Medicine 2018.
Not worth reading.

Personal
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I mostly like prison and the people here. Yet, I do have one complaint. After midnight, the floor on which I stay is populated by some unruly inhabitants who insist on reciting rap song lyrics, quite audibly, in the hallway to which my room is adjoined. I must make it clear to all parties that this behavior will no longer be tolerated. It is rude to me, disruptive to all and unbecoming of the interloper. I might also add that these recitations fall short of honoring the original artist!

35 months to go on 9/13/18. I checked all the math. 84 months – 12 months in = 72 months. 12 months for “the program” makes 60. 12 months of re-entry/early-release yields 48 months. 13 months of good time, which the above do not diminish or factor into, brings the total remaining time to 35 months. Without appeal. In another year or so I will probably relocate to a “prison camp” where the aforementioned nuisance is unlikely to require my vigilance

Can’t wait for NFL season to begin!

Math
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Thank you to all the professors, postdocs and other math professionals who have reached out to help me. It has been great to communicate with you all. Bear with me as I order my thoughts and respond in the limited way I can.

Biopharma/Investing
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Much as been made of the WSJ report on investment bank biotech commentators earning several million dollars of annual compensation. One should not be distracted. In the peak of every bull market, some participants will receive excessive rewards for no reason. This transient wealth transfer from an investment bank to an individual does not merit your envy. Once every ten years, if the excessive sum is even $5,000,000, net of taxes, the salary increase is $250,000 annually. Hardly worth getting out of bed for, let alone envying, given this excess applies only to the very few and one only has so many ten-year-cycles in his future. Indeed, do not stray for evanescent earnings–compounding is the only path.

Papers I’ve Read
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Design, Synthesis, and Biological Evaluation of Pyrimido[4,5-d]pyrimidine-2,4(1H,3H)-diones as Potent and Selective Epidermal Growth Factor Receptor (EGFR) Inhibitors against L858R/T790M Resistance Mutation. Hao et al. J Med Chem 2018,61:5609-5622.
These workers produce a very potent and selective EGFR mutant:EGFR wildtype inhibitor but with very weak PK. I doubt this drug will see the light of day when compared to Tagrisso’s profile.

MC4R agonism promotes durable weight loss in patients with leptin receptor deficiency. Clement et al. Nature Medicine 2018.
Well, RYTM is a fascinating company with a fascinating drug, setmelanotide. I’m very familiar with the POMC class which includes Acthar, Synacthen, Clinuvel’s drug, this drug, non-peptide synthetics and other peptide agents. These genetic obesity illnesses are very rare, but the efficacy is profound. The small uncontrolled Phase 3 trials Rhythm are doing will probably “work”(though I’m a bit afraid of some tachyphylaxis or other weird physiological dynamics that occur in appetite control). On the business side, this is a daily drug. Clinuvel’s longer-acting compound probably will do the same thing clinically. The authors do some preclinical work demonstrating this drug engages the MC4R receptor a bit differently than alpha-MSH or a synthetic. I can believe that, I guess, but I wonder if this drug will last the test of time given all of this. Also consider metreleptin didn’t do too well for the same disease state. Fairly modest revenue for that drug, especially in context of RYTM market cap.

Evaluation of the Safety and Efficacy of TLD in Patients with COPD. Nuvaira, Inc.
Interesting “targeted lung denervation” device. Wonder if it would help a friend I have who has lung problems.

Fluoxetine in Pulmonary Arterial Hypertension (PAH) Trial.
Skeptical!

Cognitive Reserve and Second Language Acquisition.
I could use some of this “cognitive reserve”. Think mine is all gone.

Personal
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Not a lot going on. Trashy is well. I am surprised this 8 pound marvel is able to handle all of my affairs so easily and still has time to sleep throughout the day. She could have commanded certain tasks to her canine companion, but his constant confused countenance certainly curtails the cat’s confidence in her confounded consort.

Biopharma/Investing
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The next five or ten years of biopharma investing is basically all about gene therapy. After AVXS, who knows what is possible. Abeona (ABEO), Axovant (AXON), Audentes (BOLD), BioMarin (BMRN), Oxford, PTC (PTCT), Spark (ONCE), UniQure (QURE), Rocket (RCKT), Sangamo (SGMO), RGNX, Sarepta (SRPT), Solid (SLDB), Ultragenyx (RARE), Voyager (VYGR) are all players. My guess is an equal-weighted or capitalization-weighted index of the above would outperform pretty much any other index.

You have a number of big pharmaceutical companies that have no idea what a vector is: Johnson & Johnson, Merck, Amgen, Eli Lilly. Most of those companies are also scared of orphan drugs. Pretty much the only company “all-in” is Novartis, who I often consider to be the smartest large drug company (not saying much), with Pfizer in second and GSK dabbling a tiny bit. Even the big orphan companies are gene therapy-lite: Alexion doesn’t have anything, Shire has very little and Sanofi has very little. BioMarin, of course, has the next huge AAV for hemophilia (for now).

Amazing to me that Sandoz is withdrawing from Copaxone market. Years ago this was supposed to be the most lucrative hard-to-make generic, and now they can’t make a profit selling it. Generics is a nasty business sometimes!

An HIV vaccine is within reach. What level of protection would be necessary for a commercially viable (ACIP recommended) product? 50%?

Paper’s I’ve Read
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Zen and the Art of Making a Bayesian Espresso. Zhang et al. Neuron 98;1066-1068.
With a title like this, I could not help myself. The actual paper by Konovalov and Krajbich is a simple sequence learning neuroscience study. I still haven’t read Pirsig’s classic “Zen and the Art of Motorcycle Maintenance”.

Clinical Trials
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Efficacy and Safety Study of BIIB074 in Participants with Trigeminal Neuralgia. BIIB074 vs. Placebo. Biogen.
This is a small molecule acquired by Biogen a few years ago, now in Phase 3. It’s a Nav 1.8 (pretty sure). Vertex is moving their Nav 1.7, where the data look spectacular. So, we’re a few years away from powerful non-opioid pain relief. I think the Vertex drug is far better than this one, but not too sure.

Safety, Tolerability and Pharmacokinetics of Single Ascending Doses of REL-1017 (d-Methadone). Relmada.
Surprised RLMD is still around. Probably on its last breaths.

Personal
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I’m reading the new Tesla biography. It is engaging but brief,
I’m also reading a book about the Russian composer Prokohiev as I prepare writing my own microtonal symphonies.

There’s a WSJ article entitled “Hanging with the Hedge Fund Bros to get the Story”. I haven’t read it. “Bro”, will never, ever be an insulting moniker to me. Being male is not something to feel guilty about, despite the protestations of some media. When I was labeled “Pharma Bro”, I had no idea that it was a derivative of the pejorative “Tech Bro”. Apparently, there are “Writer Bro”s as well. As most of you know, I’m sick of establishment identity politics. With Vox criticizing Animal Crackers packaging for implicit bias, why does anyone give a voice to the easily offended? Even the Germans, who must have a deeply shaped and apologetic national identity, for you know, trying to take over and exterminate the world, don’t face the same shaming American males seem to have to endure.

I’m teaching matrices to some of my friends here. Their excitement at this new way of looking at numbers is thoroughly satisfying.

Glossary
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dentate gyrus – part of the hippocampus. The DG receives input from the entorhinal cortex, related to new stimuli. The DG is thought to be instrumental in new memories and spatial processing. There is a lot to unpack here–folks have spent their whole lives studying this tiny structure.

Effect of Tableware Visual Cues on Portion Control and Eating Rate.
I’d like a plate that says, “stop eating, asshole”.

Comparative Study to Evaluate the Efficacy and Safety of MYL-1701P and Eylea in Subjects with Diabetic Macular Edema. Mylan/Momenta.
This is bad for REGN but I suppose there are more than 1 biosimilar. I just don’t know who else.

Book Review – Unhinged: An Insider’s Account of the Trump White House
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Few realize that the book publishing industry is a cornerstone of the “liberal media”. Most of us focus on news and television, but Simon & Schuster is a major culprit in the poisonously partisan media. One of their ways to attempt to influence society is to put out books like “Unhinged” by Omarosa Newman. They insist that “Unhinged” is a “tell-all and takedown from a strong, intelligent woman” and is a “must-read for concerned citizens”. Is “O” a strong, intelligent woman? This is a desperate claim from a publisher who would never publish the counter-narrative. We’re also promised “shocking details” of “alarming stories”. As I describe later, I was let down.
I can understand why a few nerdy book producers think funding projects like these will shape society, but they’re wrong. Books don’t sell well. A million copy book is very rare (I guess this book will sell 500,000 copies), and the number of folks who read them at all (half?), let alone read them seeking refutation of their pre-existing opinion is very small. Nevertheless, the systematic inclination to politically-driven greenlighting of book projects will result in the same partisan divide we see in television. Heaven help us if the general public begins to distrust what is printed in books as much as it distrusts the rest of the media.
In “Unhinged”, Newman outlines a life of aimless irony. As a proto-Trump she’s blissfully unaware that her demeanor and world-view is as cunning and “win-at-all-costs” as anyone else she’s attempting to shame. Her putative moral high ground relies solely on her perspective on race and gender issues, but otherwise, she’s obtuse (as we’re taught Republicans are), to the rest of the social justice topology. And as I’ll point out, she’s falls well sport of being a champion for minorities and women.
How did Omarosa become Omarosa? I’m not even sure she could tell you who she is today. Her memoir does little to shed light on her worldview or core beliefs. For a memoir, Newman comes off as the least endearing beneficiary of self-congratulation. There are bothersome details: she mentions in the Apprentice interview that she was a “PhD candidate” but never reveals at what school or what discipline. At some point she’s doing beauty pageants, but then gets into politics and then somehow finds herself in reality television. Naturally, her next stay is at the National Enquirer, followed by becoming a minister. The life path of our protagonist has no governing narrative or direction. Why? Omarosa, like many sociopaths, has no guiding light. She wants power, she wants fame, she wants money. Whatever hits her in the face in the morning, she’ll consider the opportunity and check if it maximizes one of those things. Perhaps a seventh failed career (model, academic, television personality, politician, journalist and clergy have not worked well thus far) is forthcoming.
The entire work is blemished by insincerity. It stunningly begins with her termination of employment, which savagely undermines her but sets a tone of blamelessness that permeates throughout. The naivete is raw: despite everything Newman claims to have seen and supposedly had misgivings about, she never quit. She explicates no fewer than three “last straws” that would cause her to quit the administration, several of which happen, and none of which lead to her leaving. This opportunist behavior neuters any attempt at an alternative explanation. The real story is, Newman tried to lie and manipulate in a world of liars and manipulators (politics) and she lost. Now she’s mad and has to salvage something. So, here we have a salacious half-true book that a left-wing publisher will stamp out. It’s cutting off your nose to spite your face, but if you need “that last five million”, this is certainly a way to do it. Through the retroscope, Newman claims she stayed with Trump “because of loyalty”. The French calls this espirit d’escalier. With all of the past in your hands, it is easy to sculpt the best story. In what is supposed to be an honest catharsis, Newman believes us to be fools. A loyal person is loyal, all of the time. When they’re slighted or betrayed, they don’t write a book as revenge. They walk away, perhaps even in disgust or hatred, but writing a “tell-all” is the antithesis of loyalty. Loyalty is easy on the way up, it is defined on the way down. It means “I’ll stick with you through thick and thin” and “I’ll never be vicious to you if something bad happens” and “I won’t be fickle and abandon and forsake you”. Any claim to a past loyalty is preposterous. Trump served a purpose for Newman and that purpose is exhausted. She is an opportunist, the opposite of a loyalist. She doesn’t even have a particularly good reason to be mad with the President, who commended her and wished her well! Writing this book is just another opportunity for a conniving actor.
We see Newman’s faulty logic on display. First, she loves Hillary Clinton. She’s an inspiring woman. Then, she’s deeply disappointed that she doesn’t cut ties with her husband after an affair. She’s even aghast at her behavior in defending him. So far, so consistent. Then, Newman inexplicably joins the Clinton-Gore White House. After that, she joins Clinton’s 2016 campaign via PAC, only to be slighted. In seeking revenge, she goes to work for Trump’s campaign. Newman isn’t loyal or even logical–she’s petty and whorish. One truly insightful moment, unoriginal I assume, is that Clinton lost because of a pervading feeling instilled by the media that her victory was assured. I haven’t thought thoroughly about the election but this makes sense and it is truly enjoyable that the media, which tried so hard to bolster Clinton, may have cost her a victory.
We get Newman’s naive but pathetic and meretricious excitement over having a big office, a 60 inch TV screen and other tiny perks that are evidently exhilarating to her. It is fitting she was fired for allegedly abusing the car service provided by the government. She complains that other cabinet members have made similar abuses in orders of magnitude. The faulty logic and aloof naivete continue. Newman explains her termination was traumatic because the door was locked. I haven’t been in too many meetings where I was planning on running out of the room in the first place. (I have been in one or two, however.) I’ve also never had a serious position at the White House, where I would imagine something like that should not terrify you. It’s just disingenuous. She’s shocked at being asked to sign a non-disclosure agreement, describing it as someone who has never seen one before might. I just can’t reconcile whether Omarosa is very stupid or thinks we’re very stupid. Perhaps both. But I know she’s disgusting. After the National Enquirer writes an awful story about her regarding her brother’s death, and she sues, she settles for working FOR them. No loyalty to an employer, sure. No loyalty to your dead brother…?
Newman claims she was fired for getting close to the elusive “N-word tape”, the reason anyone cares about her or this book. There is no actual, official account of why she was fired and the official side of the story is probably the most interesting. Her narrative makes her seem whiny and pettish. Once you’re no longer wanted in an organization, you have to ask yourself what you did to create that dynamic. Newman doesn’t even consider that attempting to obtain a career-ending recording of her boss could be grounds for termination. Still, no tape has been produced and it’s clear to Newman that President Trump is not overtly racist for much of her relationship with him. She insists his organizations are diverse and he has a large number of black friends. Only in hindsight does she believe she was some sort of Stockholm Syndrome victim. She contradicts herself within a few pages, sometimes noting that some behavior “did not match the man I knew” but then claiming the warning signs were there. The dizzy circular references betray already cratered expectations of honesty.
Only after her political career is over, only after she is summarily excused from her employment and only after some agent or publisher dangles a check in front of her, does Newman actually take action. People don’t buy books like this and have their minds changed. People who read books like this are idiots, diabetics looking for that sweet candy bar to indulge in. Omarosa isn’t credible or intelligent enough to hold sway over anyone. It takes a real devious person to “kiss and tell” so quickly and it’s clear Omarosa’s strong suit is not loyalty, as she professes. She was simply waiting to monetize her position, and in virtually any book deal, she is willing to sell herself cheap. Books don’t make people rich or powerful. I almost feel sorry for this ambitious person derailed by her own appetite for power. The rest of her life will be reliving glory days, praying for some opening to stage a “comeback” when her funds run out.
O is no writer. You don’t read a book like this for its prose, but she does humorously brag about her writing skills. For such a talented writer, the book is not endearing at all. Despite significant tragedy in her life, you don’t feel bad for O. She’s begging you to bestow her with accolades for overcoming her personal tragedies and as a woman of color achieving what she has. The only problem is it is 2018 and women of color make incredible achievements and she has not achieved anything other than being born beautiful. She’s not Oprah, Beyonce or the Williams sisters. There is no actual talent with Newman, other than her ability to set ethics aside and care solely for herself. Everyone deals with personal tragedies and becoming a reality TV show afterthought, followed by working at the National Enquirer doesn’t put you in some eternal pantheon with Disraeli, Kant and Churchill. She’s a nobody who somehow (could have something to do with her beauty pageant qualities) got a freak chance to be around some powerful people and now she’s a nobody again. I’d feel bad if my greatest value is being able to be chatty about a short period of my life. Any “tell-all” author has to have some psychological issues with their own fading relevance. Why not shut up, take the high road and move on? The answer is Omarosa Newman doesn’t know what the high road looks like, where it is or how to get there. But she is happy to point out your mistakes.

So, my guess is BGNE’s valuation is mostly a function of zanubrutinib, their potentially best-in-class BTK inhibitor. It would still make it a very expensive drug company. Further, my cursory glance at their data vs ibrutinib reveals no significant difference, at least in WM. Will have to keep looking.

Clinical Trials
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Single-Dose PK Study of Benapenem in Healthy Patients. Sihuan Pharmaceutical.
Sihuan stock has dropped a bunch in the last 12 months or so. I always thought it was a little overvalued. Interesting to see a seemingly new carbapenem, however. Too bad antibiotics are no longer a viable business. It is humorous to see ‘reporters’ opine about how we’re facing a superbug crisis, when the facts are very different.

Neoadjuvant study of pyrotinib in combination with trastuzumab in patients with HER2 positive breast cancer. Jiangsu Hengrui Medicine Co.
JH is the largest mainland China listed drug company (about $30B USD market cap). The financials are not in English. I am slowly learning Mandarin.

Study of the Safety and Efficacy of APR-246 in Combination with Azacitidine. Aprea Therapeutics AB.
This is why it pays to read random clinical trials all day. Aprea apparently developed a mutant p53 chaperone. The response rates are fairly good. I wonder if there are any papers or patents some friends are willing to mail to me on this mysterious new drug. p53 has been this important tumor suppressor for so long, but largely undruggable for somewhat obvious reasons. Given the revolution in tumor genotyping, it makes sense that restoring abberant p53 function (akin to the Vertex approach with misfolded CFTR) would be useful.

Treating paroxysmal noctural haemoglobinuria patients with rVA576. Akari Therapeutics.
This drug has been through a lot. I almost bought it 4 or 5 years ago as a competitor to Alexion’s Soliris. Recent studies have shown it appears to be not quite as effective as the real McCoy. Eculizumab is, of course, being replaced by an even better antibody. There are other anti-complement drugs out there. Still, at a $30m market cap or so, Akari is tantalizing (that does not mean attractive).

Virtual Reality for External Cephalic Version. Columbia University.
External Cephalic Version is when the baby is coming out upside down. Usually you have to C-section that, but you can try and flip the kid around. I guess the VR would help momma through that presumably traumatic process? Or train the doc?

Factor VIII Gene Therapy Study in Patients With Hemophilia A. Drug: BAY2599023 (DTX201). Bayer, Dimension Therapeutics.
Ultragenyx owns Dimension now. So many players in curing Hemophilia. Looks like BioMarin may be a year ahead of most.

Personal
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Sorry I’ve been very busy lately! I was somewhat ill the last few days. I’ve been working hard on some math problems, some of which I may have solved. I’m reviewing lots of medical literature and data I’d rather not share, and I reviewed the appeal of my criminal case, which will be filed in short order.

Our building won the first series of our softball tournament, so I’m also pleased by that.

I am going to ask my friends to aggregate all of the glossary terms into a separate page, since some of you are interested in the multi-disciplinary requirements of being a pharmaceutical investor. Could be a good self-quiz.

Biopharma/Investing
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CERC looks like a great stock and company. The people, investors, assets and strategy involved in the company are exceptional. They’re cutting deals at great prices–reminiscent of some of my early deals at Retrophin.

I still like GBT and old favorites like GILD ALXN REGN and the hemophilia stocks SGMO QURE ONCE BMRN ALNY RARE. PTCT has done so well but still has more room I think. The ACAD short is probably over. NKTR should eventually go to zero as their IL-2 drug is, well, IL-2. My favorite short is now BGNE.

Poor Pabrai, Carlisle and all of the similar folks in that self-deluded “circle”. I think there is a “value investing” community of small funds & moonlighting stay-at-home Buffett wannabees that think Graham & Dodd still works. Why doesn’t Buffett do it anymore? Why are all of the “value” funds being obliterated? The world has moved on from “buying low EV/EBITDA”. That stopped working like 30 years ago. You’re buying beta and patting yourself on the back. I hate to mock those beneath me, it feels like beating up on a patient with intellectual disability, but consider it a service to the hopefully able-minded. If your Sharpe ratio isn’t above 1, stop until you figure out why. If your drawdowns are enormous, stop and figure out why. If your beta is enormous, stop and figure out why. Investing isn’t easy. There’s no “magic formula” or “little book”. Point out someone who has gotten really rich doing this, and if there is some random moron who has, I can point out the fallacy and why they actually did well (accidental beta is usually the reason). Value companies, yes. Buy the cheap ones, yeah. Short the expensive ones, for sure. But that’s not simple. You can’t do that with “screening”. It’s enormously hard work that requires intense insight, preparation, training and exhaustive application. No shortcuts.

You might wonder what Wall Street books I actually like. One I enjoyed and read while at the MDC was “The Physics of Wall Street”. Another would be “Snowball” by Schroeder. I don’t recommend “Flash Boys”, which I felt was a rather misleading and incomplete look into high-frequency trading, or the two books I’ve panned here. I don’t ready many books on investing or business, but I certainly get these books unsolicited and read them when I have time. I read “Four”, which I wouldn’t recommend. Alibaba: The House that Jack Built was okay. Definitely didn’t help me to understand a fairly instructable guy. I got deliveries of “Principles”, “Shoe Dog”, “Barbarians at the Gate”, “Market Wizards” and a dozen more, but didn’t have time and left them behind at MDC.

Interview Questions – Part 2
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Getting to know a personality is the trickiest part of the HR process. It’s relatively easy to measure aptitude, confidence, analytical approach, etc. It’s hard to know if someone is motivated, psychotic, greedy, loyal, etc. You want people that eat, sleep and breathe their field. In this case, people that love pharmaceuticals or investing (or both) so much, they’d do it for free. A good sign of that comes from the person’s history and why that got into the field. Tracing their life history helps. I am wary of people who have a very active social life, lots of interesting hobbies and other distractions. Work-life balance is great and necessary for well-adjusted behavior. However, I’d rather have the person obsessed with their field. A little unhealthy. The person who reads that last paper in AJHG at 11:30pm on a Friday is more likely to be useful to the company than anyone else.

With respect to our within-group analysis, any old investigational drug can have a meaningful reduction in symptoms from baseline, but only an investigational drug that can do that better than placebo is a real drug candidate 🙂

Mechanisms and clinical activity of an EGFR and HER2 exon 20-selective kinase inhibitor in non-small cell lung cancer. Robichaux et al. Nature Medicine 2018.
A tremendous end-to-end (“translational”) series of experiments starting with exon 20 mutation modeling , moving to cell lines and finally robust human responses. How it should be done. One worry is afatinib looks potent enough to compete with poziotinib. Poziotinib US rights are owned by Spectrum. The compound was created by Hanmi (I think), showing us sourcing molecules from the Asia region is always worth looking at.

Extending a systems model of the APP pathway: separation of beta- and gamma-secretase sequential cleavage steps of APP. van Maanen et al. JPET 2018.
JPET is usually a great journal but when it gets into systems biology and PK-PD modeling, I think there is more hand-waving and voodoo than real science. Take for instance, this paper. All the fancy differential equations in the world don’t explain the empirical phenomena accurately if we’re testing the wrong media and have a poor understanding of the PD. The “GSI” used here is around 1uM, not exactly potent, and we learned from the recent Shionogi paper I reviewed that a lot of GSIs aren’t really GSIs and beta-amyloid may be sequestered intracellularly. So here, the investigators (including Merck & Co researchers), took a brain port straight from the cisterna magna, but I’m not sure that is the right call either. So you have this fancy PK-PD model but it’s all “GIGO”, another important acronym 🙂

Enzalutamide in Men with Nonmetastatic, Castration-Resistant Prostate Cancer. Hussain et al. NEJM;38:2465-74.
The “PROSPER” study had predictably great results for Xtandi, HR=0.29(!). Revenue for Zytiga (abiraterone) is incredible. I have to dig up Astellas financials to see were Xtandi is, I think somewhat behind. Will be interesting to see how the new J&J drug from their Aragon deal (Erleada/apalutamide) does. But no mistaking that HRPC is getting more and more manageable, which is resulting in an even bigger patient pool. At some point in the future, more men over a certain age (perhaps 80) will have prostate cancer than not.

Progress in Nonmetastatic Prostate Cancer. Matthew R Smith. NEJM 2018;376;26:2531-2532.
There won’t be any way to test new drugs in this illness. Just takes too long. Maybe move to PSA as an endpoint?

Inhaled Corticosteroids and LABAs–Removal of the FDA’s Boxed Warning. Seymour et al. NEJM 2018;376;26:2461-2463.
FDA eats crow. The studies they asked for didn’t even answer the right question. I bet a lot of people actually suffered for this mistake. Having said that, you can never be too careful in their shoes.

Biopharma/Investing
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Interview questions for an incoming pharma/biotech BD/M&A analyst follow. No one can do this job effectively by themselves, so hiring the right people is essential. The list isn’t exhaustive but reflective of my own interview style. Answers or reasoning for questions are at the bottom.

1. Describe the cell cycle in as much detail as you can.
2. If you were to receive $1 annually on 1/1/xxxx from a reliable party, what could you sell this income stream for?
3. Company A generates $10 million in stable, recuring income/cash flow from $100 million in revenue. Company B is the same as company A, except you are told that Company B has a $10 million annual party (still $10m profit on $100m in revs). What would you buy company A and company B for?
4. What is the most surprising clinical trial result you’ve seen?
5. What drug in clinical trials today do you believe will fail?
6. What disease state offers the largest business opportunity for a new medicine and what approach would you take?
7. Name 3 undervalued public biopharma companies.
8. Describe a large scale protein production process in as much detail as you can.
9. Describe the prototypical (perhaps stereotypical) physiochemical properties of a psychiatric medicine in as much detail as you can.
10. What element are you? Why?
11. What medicine do you most admire? Why?
12. Two companies, Pfizer and a small biotech company, are vying to bring a new class of medicines to the market. Pfizer is one year to two years ahead of the small biotech company. Hypothetically assume Pfizer has a change of heart unrelated to the programs’ prospects and you can acquire either program for $50 million. Assume the separate programs have an identical likelihood of technical/regulatory success. What questions do you need to ask to inform your choice?
13. In what circumstances has a method of use patent been upheld?
14. Give some examples of revenue size by country of a pharmaceutical. Be as detailed as possible (revenue in Germany, Japan, China, France, etc).
15. What type of return in achieved by: venture capital funds, internally derived R&D, acquisitions, healthcare private equity and healthcare hedge funds. Is there an optimal capital allocation process for a pharmaceutical investor?
16. What went wrong for Valeant?
17. A paper appears in Nature detailing what appears to be a tremendous advance in a therapeutic area by means of a preclinical experiment. The university team is willing to license the work to you for $5 million. What do you do to ensure your maximize of success?
18. A drug candidate has a 50% reduction in symptoms from baseline with a within-group p-value of 0.0001. In this placebo-controlled study the across-group comparison p-value is >0.05. What is your interpretation of this result?

Book Review: The Acquirer’s Multiple by Tobias Carlisle
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One of you philistines sent me this, unsolicited. An appropriate subtitle would have been: Sophistries from a Confused “Value” Investor.

I have no idea who Tobias E. Carlisle is. Does anyone? Don’t write books about things you haven’t done. I’m not going to write a book called “How to Win the NBA Finals: Secrets of the Hook Shot”. It’s hard to write a book about investing if you haven’t done it and done it really well. What brings someone to the point where they feel they have to regurgitate the limited knowledge they’ve acquired in a field? Is it their tremendous writing skill? Carlisle provides zero evidence of creativity or aptitude in English language word selection and ordering. So, it must be that what he has to say is so important and learned that we should ignore his inability to articulate it!?

No. The actual content of the book is laughable. I was astonished at many points during reading that someone, even the author, thought this template of inanity was worthy of reproduction. The book begins by introducing a few concepts and platitudes which annoyingly recur. Carlisle’s writing strategy is to repeat his maddeningly ambiguous “point” so frequently and without variation, it borders on absurd. Mean reversion is the most powerful force in investing, the author would have us believe. I assume Mr. Carlisle is long Sears, Radio Shack, Toys R Us, Gap, American Eagle, Pacific Sun and is short Amazon and still waiting on that mean reversion. Me? I have a long list of biotech stocks that failed Phase 3 trials and went bankrupt, I’m long those, and short Gilead, Roche and Novartis as what goes up must come down. Gravity just doesn’t have the same sway Newton predicted in the strange universe of equities pricing.

Carlisle keeps talking about how one has to defy the “crowd” to be a successful investor. But what is the “crowd”? Or even the “market” for that matter? Carlisle doesn’t realize these are silly adages bereft of logic. “To beat the market you have to do something different from the market”. Really? So to outperform the S&P I have to not be long every single stock in a size-weighted approach? Tautologies abound for the forsaken person who has received this book as a twisted joke of a gift.

Carlisle insists mean reversion is the force that pushes up undervalued stocks. No. I define that force as “alpha” or “arbitrage” (it is also the size of the delta between market price and our derived price). In my framework, over time, alpha approaches 1. Mean reversion has nothing to do with it. For instance, a drug company worth $1 billion announces a breakthrough. The stock goes to $5 billion and stays there for 5 years. They plan another breakthrough, it seems like it will work, but the market doesn’t notice it. You go long. They announce the breakthrough and the stock goes to $15 billion market cap. The gap closed because of alpha realization, not mean reversion.

Another absurd tautology: Undervalued stocks tend to beat the market. A child could tell you that ONLY undervalued stocks beat the market. Of course, as we’ll painfully learn, Carlisle thinks that undervalued stocks are those with low earnings ratios. Yes, the key message of this book is to buy stocks with low P/E, EV/E, and finally, the eureka moment that rivals Einstein, EV/EBIT. Buy low. Sort a list of stocks and buy the low ones and you get rich. That’s what the book says.

Empiricism should never trump logic in investing. The greatest human folly of logic is ‘it happened before so it will happen again’. The amount of money lost, lives lost and destroyed productivity that groundless but intrinsically attractive repetition of prior processes to achieve future results has cost our species is immeasurable. Carlisle doesn’t provide any data or serious methods to allow the examination of his claims. He excludes a large number of stocks, and only US stocks for only short periods of time, where the market did extremely well. One obvious hidden bias to his approach is cyclicality. When the economy is doing well, and the US has done very well, and booms are longer than busts, cyclical stocks do better than the market because of the surprising economic resiliency. Recessions are shorter than investors thought, so stocks do better. Without shorting corresponding stocks, its hard to really know what alpha this system generates. We can see it generates a terrible drawdown and a Sharpe Ratio no better than the market. No serious quantitative investor would ever employ this “algorithm”.

It takes a lot of audacity to write a book that says “buying stocks that meet this secret criteria will make you rich!”. Okay what’s the criteria!? “Low earnings ratio!”. I wanted to throw “TAM” across the room when I realized the writer’s core message. Most of the book is similar to “The Dhando Investor” in that it parrots Buffett, but also includes genuflection to more recent investors like Icahn & Loeb. Like a child nervously glancing at his parents at a piano recital, Carlisle hopes that the conjuring the authority of Buffett will lend credence to his system. Coincidences in Buffett’s approach lend no credence to Carlisle’s system any more than my own obsession with Cherry Coke has made me a great investor. What the author doesn’t realize is that the investors he tries to demonstrate his system emulates have their best days behind them and new methods replace old. Prior world record holders would not qualify for today’s Olympics. We laugh at chess games from the early 1900s and know a moderately-ranked master would likely be the World Champion of 1912. Virtually any competitive sport or activity has the same dynamic: chess, poker, running, surgery, and definitely investing. You can’t look to the past. The people who we are to emulate and admire according to Carlisle were mavericks and innovators. You’re not being an innovator by copying what someone did in 1955, or even in 2000. To beat the market, maybe you have to do something new.

Amazingly, Carlisle advertises his stock screener (only 9.99!) in the book. Anytime someone promises you the fountain of youth, or in this case, the fountain of money, in a “little book” that does something that is very hard to do, but only is asking for your patronage somewhere else, run away. There is one page of marginal interest on overthinking that cannot excavate the reader from the intellectual cave this book builds. Nevertheless, I would recommend “TAM” to a small child (age 6 to 11) curious about the markets. It is simple, short and sets the reader up for more serious thinking later.

Papers I’ve Read
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Combined Analysis of Asthma Safety Trials of Long-Acting Beta2-agonists. Busset et al. NEJM 2018;378:2497-2505.
I wonder how many publications gave the “all clear” signal after writing some scary article about LABAs. I really want to campaign that science writers actually get some (I know this is crazy) science experience. Notice the mITT HR=1.24? Only thing I found unusual here, whatever mITT definition that differed from ITT moved this from no trend HR=1.09, p=0.55 to trend HR=1.24, p=0.13. If it didn’t bother the FDA, it doesn’t bother me. Goodbye black box.

Personal
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I might quit trolling. This wouldn’t be a permanent retirement as much as it would be a shift in focus. I intend on doing fewer in frequency but higher-impact public performance art style trolls (eg Wu-Tang). I have been heavily influenced by a loved one in this regard.

I have been busy reading proprietary research and, of all things, working on math. I am particularly interested in algebraic number theory–if anyone out there is a or knows a professor in this field, I would love to compare notes. martin@thotpatrol.com is the best place to contact me.

Interview
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1. I don’t really care if an applicant understands the cell cycle (unless they got a PhD in cell biology and wrote papers on anaphase dynamics!) or can tell me about non-inferiority margins and esoteric statistics or anything else. I’m trying to determine if the person is self-confident, honest, humble, ashamed, self-conscious, etc. after being asked a technical question. The number of people who tell me they have statistical experience or chemistry experience only to swing and miss a softball technical question is large. If you can fluster someone with a softball, they’re probably not a good fit.
2, 3. See question 1. Answer for 2. is $10-$20, 3. $75m for Company A and $140m for Company B.
4. I have a lot of answers to this one. Perhaps the nusinersen results were the most eye-opening in recent memory.
5. Any beta-amyloid mab trial in mild-to-moderate patients.
6. Alzheimer’s disease is the easy answer. Parkinson’s is a great underdog. Autism would be an intriguing answer. polyQ disorders would get a gold star. Treatment-Resistant/Cognitive-Impairment in Schizophrenia would be an accurate answer. Neuropathic pain is not a bad choice.
7. Well, you can read my blog! I’d say GBT.
8 & 9 See 1.
10. Fluorine! Hungriest element! Personality is important. I’m curious how creative candidates are. I’ve asked people what superhero they most identify with.
11. Similar to #10, looking for creativity and values. A bit of a Rorschach.
12, 13 & 14. More general industry knowledge. On #12, first isn’t always best. 13. Rarely, Viagra is probably the biggest example. 14. Most have no idea the relative size of revenue by country–somewhat dependent on the type of medicine.
15. Testing the candidate’s understanding of capitalism. The point of any capitalist entity is to deploy capital and engineer a return on it. So, a drug company is in competition with a drug hedge, private equity or venture capital fund. How are those investors doing? What are they doing?
16. Overpaid for acquisitions as they scaled, NOT Philidor or price increases.
17. Replicate the experiment internally before forking over the big $.
18. No treatment effect.

Opdivo and Keytruda are approved in China. CStone and countless others are in pivotal trials. AstraZeneca has a long history in China and you can bet will register Imfinzi there. I’m not sure what Roche’s or Pfizer’s ambitions are, but they also do strong business in China and have globally registered PD-1s. So there are at least 6 PD-1 mabs I can name off the top of my head that are China-approved or likely to be that do not come from Beigene. But Beigene has a very large market capitalization. This will not persist. I have not seen something like this in a long time.

Lots of interesting companies to look at. Constellation, Summit, Fibrogen and so many more. Not enough hours in the day!

Is the world ready for biosimilar orphan drugs? Cerezyme and Myozyme aren’t tiny. I guess we have a few “me-toos” but they’re not cheaper.

Interesting article in JAMA my father sent me on body dysmorphic disorder and social media photo editing software as a trigger for this disorder. BDD is real: if you’ve ever seen someone with large amounts of plastic surgery, they likely suffer from BDD. But there are plenty of people who suffer quietly. Most people are probably unconsciously affected by societal progression of beauty standards. There’s a reason I’m attracted to Lindsay Pelas and Jen Selter–it’s mostly because I’m a man and they largely embody deeply inherited/evolutionary desires of man. So what if they understand that and have perfected it? We’ve reached the singularity of female desirability and the technology-enabled enhancement (both photographical and biological) of it. What’s next? I don’t know.

Papers I’ve Read
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Functional gamma-secretase inhibitors reduce beta-amyloid peptide levels in brain. Dovey et al. J Neurochem 2001.
I guess this Elan/Lilly paper started the whole semagacestat/gamma-secretase mess. They go up to 200mg/kg (!!!) dosing in these experiments with their putative GS inhibitor DPAT. Its very hard to trust any of the data given what we know now about APP processing and intracellular retention. Still, you can see the errors in judgment with the high-powered lens of hindsight. It’s also funny to see what passed for a screen in 2001.

The gamma-secretase inhibitor N-[N-(3,5-Difluorophenacetyl)-L-alanyl]-S-phenylglycine t-butyl ester Reduces AB Levels in Vivo in Plasma and Cerebrospinal Fluid in Young (Plaque-Free) and Aged (Plaque-Bearing) Tg2576 Mice. Lanz et al. JPET 2003, 305:864-871.
Pharmacia workers “replicate” Dovey. Same issues. I think everyone was okay with the 100-200mg/kg dose given low brain partitioning and a cell-based assay affinity of ~100nM. It’s really hard to tell what these ELISAs are picking up and what species are relevant for aggregation.

Personal
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I’ve received around 500 books by mail since I entered the prison system. There is a Twilight Zone episode, “Time Enough At Last” (I think that’s what it is called!), that summarizes my feelings on having a lot of time to read. It’s a joy, but I don’t exactly have the shelf space. I probably have around 50 books here at Fort Dix. This is still far too many. So, please don’t send me any books without my knowledge! They will probably end up donated or thrown away. Also, if you mail me, it must be in a plain white envelope with plain white paper. No stickers, glitter, or contents other than paper. No stamps.

Sarah Jeong joining the New York Times is a disgrace. This woman is not a satirist, she has truly backward and painful racial beliefs. We should ask her some simple questions to clear up her “satire”. If you did the same to me, it would look like this:

Q. What do you really think of Hillary Clinton?
A. I think she is an untrustworthy parasite of politics. She should not hold office and represents what is wrong with the American political system.

Q. But why?
A. Just look at how much money her family has made through “speeches”. That’s basic influence peddling. I don’t expect Bill Clinton to become a store clerk after being President, but to become a high-paid lobbyist is a bit disgusting. They’re certainly allowed to be capitalists, but the irony of HRC railing against the rich is not unnoticed.

Q. Do you wish harm on the Clintons?
A. No. I admire all Presidents, once elected. As someone who has achieved a lot, the Presidency is the ultimate achievement and I respect the winner of such an arduous contest. I haven’t yet seen a President so contemptuous to break this ingrained respect. I also begin my analysis of a candidate with a “clean slate”, once elected. I would have done the same for Hillary.

If you did that with Sarah Jeong I think she’d have a hard time disavowing some fairly extreme views. I’d like to see the demographics of the New York Times staff and its readership. I wonder if “white people” are high on that list. I also want to remind Ms. Jeong that Asian Americans are now the highest earners in the United States. There are a lot of poor, uneducated and very, very non-privileged white people. Racism is painful and shameful, but society must grow and move on. Never forget, but learn and grow. What is Jeong adding to the conversation?

Investing/Biopharma
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Always remember that investing is simply price calculations. Your job is to calculate accurate prices for a bevy of assets. When the prices you’ve calculated are sufficiently far from market prices, you take action. There is no “good stock” or “bad stock” or “good company”. There’s just delta from your price and their price. Read this over and over again if you have to and never forget it. Your job is to calculate the price of things and then buy those things for the best price you can. Your calculations should model the real world as thoroughly as possible and be conservative in nature.

Neurocrine is selling a lot of drug. Sometimes you’re wrong! Good for them.

It’s the end of an era for Johnson & Johnson as Stelara takes over Remicade as their best-selling drug. What an achievement, and mostly on psoriasis? Kind of incredible how patients will be diagnosed the more a treatment is effective. Build it and they will come!?

I’m going to start including “Patents I’ve Read”, as a very important source of knowledge that I try and keep up with.

Noninvasive blood tests for fetal development predict gestational age and preterm delivery. Ngo, Quake, et al. Science 2018, 360, 1133-1136.
Dr. Quake out with another banger. Drake should take notes. The cell-free fetal RNA test looks at the mother’s blood to determine delivery date. It’s as effective as ultrasound, which was a little disappointing, but my guess is it will be optimized. Pretty amazing!

Subclinical Hyperthyroidism. Biondi & Cooper. NEJM 2018.
Just in case you needed to know about a disease with no symptoms or sequelae.

Reboxetine in therapy-resistant enuresis – a randomized placebo-controlled study. Lundmark et al. J Pediatric Urology 2016.
If you’re old enough to remember Pfizer developing a reboxetine isomer, good for you. The problem with bringing reboxetine to the US is you have atomoxetine which is functionally similar (and generic). So, you could spend a lot of money “repurposing” reboxetine for ADHD, enuresis, NOH or god knows what else, and probably do just fine, but I don’t do just fine, do I?

Chronic delta9-THC in rhesus monkeys: effects on cognitive performance and dopamine D2/D3 receptor availability. John et al. JPET 2017.
I’m all for getting monkeys high and seeing what happens. Apparently you develop a tolerance to some cognitive impairment and whatever else goes away after two weeks of abstinence. Legalize away!

You can imagine how surprised I was to receive a book from “Ringo” today. Ringo is a member of the canine species, and said member unfortunately lacks a uniform color. Nevertheless, despite his polychromicity and limited intellect, he successfully mailed me “Quantum Physics of Atoms, Molecules, Solids, Nuclei and Particles by Eisberg and Resnick”. This is a subject I know little of and hope to know even less. It will fit snugly on a planck under my bed until Ringo learns how to respect members of the feline species. Jokes aside, thanks you Ringo. May you outlive your namesake.

Biopharma/Investing
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Well, Yescarta is doing quite well, actually. $68m last quarter as per Gilead’s most recent quarterly earnings. That’s not awful! This is one-time treatment, however. So unlike most drugs, these patients aren’t paying a subscription fee. For Gilead that kind of reminds me of hepatitis C, but of course, unlike HCV, cancer patients don’t come from a “pool”, they simply arrive every year. It’s far too early to tell but generally a performance like this would suggest a $1 billion medicine, at least. Makes KITE a decent deal. However, as in all things, you can never know for sure. Next quarter could be down! The drug may plateau at $500 million or go on to $2 billion+ performance. No idea.

Surprised how well ABBV is holding up in Hep C.

It is still fascinating to me that drug journalists not only are unfamiliar with statistics, but they also appear to be rooting for drug companies to do poorly. The hatred towards AbbVie for not having biosimilars in the US is particularly funny. Are these writers taking Humira for rheumatoid arthritis? Do they think that biosimilars to adalimumab, which represents ~2% of US drug spend will save what they perceive is a healthcare crisis? Have they looked at AbbVie’s patents and have pointed out the prior art that renders them meaningless despite the respect shown by the biosimilar companies? Emotion trumps inference for the cognitively challenged.

Papers I’ve Read
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Semagacestat Is a Pseudo-Inhibitor of gamma-secretase. Tagami et al. Cell Reports 2017:21, 259-273.
Tagami and Shionogi workers go on an interesting journey to learn more about gamma secretase. They draw very speculative conclusions but have a foundation: semagacestat INCREASES beta-amyloid intracellularly. So, if you’ve been playing along from last week (and you should), we have to solve a mystery. One solution is a simple law of conservation. If you have a pre-peptide (endothelin, angiotensin are good examples) and it has to be “processed” (cleaved) to create its final form, and you inhibit the enzymes that do this, you still have the pre-peptide (sometimes called a pro-peptide, or even a pre-propeptide.) If that entity aggregates, you’re in trouble. Peptides are eventually proteolytically degraded but if they are aggregation-prone, you’re out of luck. The writers assume semagacestat is inhibiting some other functional part of the GS complex, the part they speculate trafficks AB out of the cell. More work is needed, but it neatly explains all the results seen so far. This is a great lesson in preclinical experimentation: make sure you know what you’re measuring. AB in the “soluble fraction” (extracellular) may drop but if its being retained, you haven’t solved the problem.

Primary Prevention of Cardiovascular Disease with a Mediterranean Diet. Estruch et al. NEJM 2013.
As we close the semagacestat puzzle, here is a new one for young, would-be drug hunters. What do you see in this publication that is strange? Are the conclusions reasonable? Can we reject the null hypothesis? Why not? Answers in the next blog. Guess away in the comments.

Phase 3 Trial of Ibrutinib plus Rituximab in Waldenstrom’s Macroglobulinemia. Dimopoulos et al. NEJM 2018.
The “iNNOVATE” trial demonstrated a death-defying HR=0.20. WM is a weird little disease, often an afterthought given its relatively indolent nature compared to its cousins. Still seems like there could be an opportunity here for another agent.

Personal
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The last post about intelligence requirements for STEM vs. the humanities was triggering. But, it was a trap! There has been enormous data generated recently that correlate intellect with educational achievement and even SAT performance (high R^2!). I must admit I’m probably going a bit too far when I say learning quantum physics is “harder” (requires more cognitive ability to perform adequately) than gender studies. One can be a master of each discipline. Was Einstein more of a genius than Shakespeare? No, definitely not. Was Shrodinger no less of a luminary than Duca? In all seriousness, I think a well-rounded education is important. I don’t write frequently anymore, but once-upon-a-time I thought I’d do it for a living. My problem with science business (pharmaceuticals, for instance) writers is they don’t know science or business. There are very few people who know both fields, and you can bet they’re not writing about it. Before you bicker about some prevailing inferiority complex, consider the above an advertisement: I’m doing it!

Glossary
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antibody – n – An immune system protein, “Y”-like in shape, composed of Fc and Fv regions. Binds to, and generally eliminates, a target molecule called an antigen, usually another large molecule/protein. Originally manufactured in mice (murine antibodies).
chimeric antibodies – n – Obsolete now, but antibodies created with a human Fc region and mouse Fv region.
complementarity-determining region (CDR) – region of an antibody that defines its binding to its target
consanguinity – adj – Related parents (inbreeding). Very common in rare genetic diseases. A restricted gene pool tends to result in autosomal recessive disease — the Amish, certain Jewish sects and other populations that simply don’t see much migration have a larger share of rare diseases.
epitope – n – exact binding site of antibody’s antigen.
eosinophils – n – a type of white blood cell that mediates an allergic/asthmatic response.
Fc region – n – “Framework constant” region of an antibody. The bottom part of the Y.
fully human antibody – n – generally created in transgenic mice where the mice are genetically modified to only create antibodies from human genes.
Fv region – n – “Framework variable” region of an antibody. The arms of the Y.
Humanized antibody – n – a chimeric antibody with a human CDR framework (much of which is constant).
intent-to-treat – n – for statistical purposes, the entire enrolled trial population, usually that was randomized and received at least one treatment dose. As opposed to per-protocol population, the pool of patients that completed the trial correctly. Test statistics are almost always conducted on the ITT population with missing data interpretation defined prospectively.
monoclonal antibody – n – See antibody. The monoclonal adjective distinguishes from polyclonal, in that monoclonals come from one source and have one epitope.
type 2 inflammatory response / immune response (Th2) – n – Elevated levels of eosinophils, IgE, IL-4, IL-5, IL-9, IL-13 and other immune markers that distinguish the response from Th1.